It is an exciting time to buy a brand-new property whether it’s a house, townhome or condo. What seems to be even better is that the salesperson said that legal fees are included as long as you use the Builder/Developer’s lawyer. This seems too good to be true… and it is!
Saving On Costs
The first point is that you may only be saving on the actual legal fees and not on all of the registration costs and disbursements. The legal fees are surprisingly only 50% of the total invoice when you buy a home. Government costs to register the transfer and the mortgage take up a big portion of the costs. These “hard” costs are normally passed on to you by the builder’s lawyer. So, the big saving you thought you were getting is really only 50% of what you thought your were saving.
Representation In Homebuying
There is an important point to understand that when you purchase a home normally your lawyer acts for not only you but also your lender if you are putting a mortgage on that property. Technically, this is what we refer to as a “conflict” where as lawyers we answer to two or more clients. In those cases, there is no confidentiality and if there is an unresolvable dispute between the parties we simply cannot act for either of them. Each party is treated equally and without favour.
This situation gets turned on its head when your buy a new property and agree to use the builder/developer’s “lawyer”. The quotation marks are important here because you will not have a lawyer. In fact, the lawyer will only be acting for the builder and will have you sign off that you are only hiring them as an “agent” for the purposes of closing. And further, that if there is a conflict between you and the builder, it is you that has to find a new lawyer but the builder’s lawyer gets to keep working for the Builder.
Conflicts With Your Builder
Imagine if you have an issue during the building phase of your new property or closer to the closing. Who is acting for you to argue with the Builder? The lawyer you thought you had is now referring you out of their office to go find your own lawyer and this can be at the last minute. The costs you thought you were saving are now likely dwarfed by the legal fees with your new lawyer.
Things get even more fun when you have a mortgage because the Builder’s lawyer agrees to work for your lender as their lawyer in addition to the builder (the banks will not accept being represented by an “agent”) so if there is a conflict between you and your mortgage company there is the distinct possibility that the lawyer must disclose everything to the lender but not to you.
Seems crazy but that is how conflicts are resolved. In the end, you really do not have a lawyer when you use the Builder/Developer’s lawyer. The actual savings of $1,000 on a home that you have spent your life savings on really aren’t enough to justify being left on your own to deal with any issues you have or might have. Things really aren’t a problem… until they are and in this case all of the consequences of that fall solely onto you.
For more information regarding real estate law, we are Calgary’s leading legal real estate team to help you. Contact us today, 403 245 – 3500, or email us at [email protected].
